Morning Reads








Tesla (TSLA) has slid out of the list of the top 10 U.S. companies by market cap after logging its seventh straight decline on Tuesday. Shares plunged over 11% to under $110, bringing the YTD losses for the company led by Elon Musk to nearly 73%. Weighing on the electric vehicle maker were reports of another production pause in Shanghai, as well as an adverse delivery outlook from rival Nio (NIO), but when looking deeper into it, a bubble may simply be deflating.

Don't fight the Fed: All the Big Tech giants, which Tesla is often compared to, have been battered this year as the central bank implemented a series of severe interest rate hikes to counter inflationary pressures. Meta Platforms (META) is down 65% YTD, while Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) are off between 30-50% in 2022. Many have warned that these players traded at higher than normal multiples even in during the cheap money era, but then again, the doubters have been proven wrong time and time again. Will the next stretch be different?

Not helping the Tesla situation is Elon Musk's distraction at Twitter, global economic uncertainty, and rising competition from traditional ICE producers and EV makers alike. Musk has also been selling Tesla stock in big chunks despite pledges to the contrary, while promises of Full Self-Driving mode have failed to materialize. Tesla has also been expanding its discounts, raising questions about demand, especially as prices of used Teslas fall faster than those of other carmakers.

Time for another split? Tesla has seen around $720B of shareholder value vaporize this year, becoming the largest contributor to the S&P 500's decline in 2022. Shares are down 44% in December alone, and have plunged over 70% YTD, which is more than double the decline of the Nasdaq Composite. Tesla has traded under $30 for most of its 12 years on public markets (on a split-adjusted basis), and only soared to $100, $200, $300 and then $400 in the last few years of pandemic stimulus trading euphoria. (322 comments)

Cap and ban

Russia has responded to the G7's attempt to cap gains from its oil revenues, with a new decree signed by Russian President Vladimir Putin. The motion, takes effect between Feb. 1 and July 1, will ban contracts that "directly or indirectly" comply with the $60 price ceiling levied by Ukraine's Western allies.

Fine print: Putin is allowed to carve out exemptions by "granting special permission" in certain circumstances. The decree also falls short of heavier potential countermeasures, like setting a minimum price differential or barring certain countries from purchases.

Meanwhile, Russia's flagship crude, known as the Urals blend, is trading below the $60-a-barrel threshold set by the EU and G7, meaning the cap has yet to apply and most business can proceed without restrictions. Moscow has separately offered large discounts for the main importers of its oil, India and China, which haven't signed up to the sanctions. Many analysts also note that Russia has enough of a shadow fleet to skirt the sanctions, meaning more shipments will be rerouted, which is already happening across the global crude industry.

Market reaction: While headlines were quick to flag a potential disruption, investors are not banking on one - yet. WTI crude futures (CL1:COM) have been unchanged over the last 24 hours at $79 per barrel, while Brent crude (CO1:COM) continues to hover around $84. The bigger story appears to be the full reopening of China and how that oil demand will impact the global economy. (7 comments)

Travel alert

As China reopens its borders with the world, some nations are considering fresh restrictions. A surge in cases across China has raised new questions about transparency, especially after Beijing said it would no longer report daily data on infections and deaths. Chinese hospitals and funeral homes are also under intense pressure from the scale of the current outbreak as a zero-COVID policy that was in place for nearly three years comes to an abrupt end.

Snapshot: India and Japan are now requiring a negative COVID test for travelers from mainland China, while Malaysia has put in place additional tracking and surveillance measures. The U.S. is now weighing similar steps and may announce a series of coronavirus precautions for travelers. Many Chinese are now rushing to book international trips after Beijing on Tuesday lifted its restrictions on reentering the country from abroad.

Health experts are concerned that the virus' untracked spread, and lack of viral genomic sequence data, could trigger a dangerous or super-contagious new variant. Without proper identification, it would be increasingly difficult to take prompt measures to reduce the spread. Economically speaking, it also has the potential to roil the global logistics network once more, which could have knock-on effects on inflation and economic activity.

Response from China: "The current COVID situation in the world continues to call for a science-based response approach and joint effort to ensure safe cross-border travel, keep global industrial and supply chains stable, and restore world economic growth," declared Wang Wenbin, spokesman for China's foreign ministry.

Growing tensions

Trouble is brewing in Europe again, but not only on the border of Ukraine and Russia. A flare-up in the Balkans is threatening the stability of the continent, with the epicenter of the conflict taking place in northern Kosovo. The republic's ethnic Serb minority and ethnic Albanian majority are making headlines, but this time around, the crisis seems more dangerous than usual, and could have economic repercussions.

Backdrop: Things escalated over the last few weeks over new license plate requirements. The government in Pristina required ethnic Serbs to hand in their Serbian-issued vehicle license plates and replace them with "Republic of Kosovo" plates. Not many made the swap before the deadline, as a struggle played out over sovereignty and identity. With plans to impose fines on the holdouts, ethnic Serbs from all of Kosovo's national institutions resigned in a mass resignation.

Historical commitments failed to bring any compromise, and Serbs residing in the north erected roadblocks and barricades that essentially divided the area. Things didn't get any better after Kosovo accused Serbia of backing Russia by sparking the unrest to distract attention from the war in Ukraine. Kosovo also closed its largest border crossing with Serbia today after protesters erected roadblocks on the Serbian side.

Go deeper: Serbian President Aleksandar Vucic has said his army is at its "highest level of combat readiness" and will take "all measures to protect our people and preserve Serbia." Albanian-majority Kosovo declared independence from Serbia in 2008 - following a war in the late 1990s that saw NATO intervene to protect ethnic Albanian citizens - though remaining Serbs there remain loyal to Serbia, which refuses to accept Kosovo's secession.

Today's Markets

In Asia, Japan -0.4%. Hong Kong +1.6%. China -0.3%. India flat.
In Europe, at midday, London +0.8%. Paris flat. Frankfurt -0.1%.
Futures at 6:30, Dow +0.2%. S&P +0.1%. Nasdaq flat. Crude -0.3% to $79.27. Gold -0.6% to $1811.90. Bitcoin 1.2% to $16,655.
Ten-year Treasury Yield -3 bps to 3.83%

Today's Economic Calendar

10:00 Pending Home Sales
10:00 Richmond Fed Mfg.
10:00 State Street Investor Confidence Index
11:00 Survey of Business Uncertainty
11:30 Results of $22B, 2-Year FRN Auction
1:00 PM Results of $43B, 5-Year Note Auction

Companies reporting earnings today »

What else is happening...

Four straight months: U.S. home prices continued their decline in October.

AMC Entertainment (AMC) CEO mentions freezing executive pay.

Southwest Airlines (LUV) to operate reduced schedule after cancellations.

Taiwan Semiconductor (TSM) may celebrate 3nm mass production soon.

Nvidia (NVDA) leads semiconductors lower in final trading week of 2022.

Amazon (AMZN) is looking to sell extra space on its cargo planes.

Novavax (NVAX) COVID shot lags effectiveness in first study of its kind.

YouTube (GOOGL) needs 2.3M subs to break even on NFL Sunday Ticket.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

More Posts by UPB: View All | Private Twitter Feed: Access Now! (For Diamond Members)